ASIA-PACIFIC TRADE AND INVESTMENT REPORT 2015 87 CHAPTER 6 6 PREFERENTIAL TRADE POLICIES AND AGREEMENTS O nce considered an example of the benefits of autonomous trade liberalization, Asia-Pacific economies have turned into major contributors to a global build-up of preferential trade agreements (PTAs). 1 Stalled multilateral trade negotiations under the Doha Round plus a considerable slowdown in economic activities globally have provided a strong incentive to use preferential trade agreements for both offensive and defensive liberalization. This has led to the negotiation of trade deals being treated almost as a substitute for trade policymaking. Currently, Asia-Pacific region economies are participating in a wide variety of preferential agreements, at both the bilateral and plurilateral (regional) levels. They are parties to 155 (59%) of the global total of 262 “physical” 2 PTAs that are currently in force. While fewer new agreements are being completed on an annual basis, almost all of them that were enacted in 2014 and January-June 2015 involve at least one economy from Asia and the Pacific. Although it is unlikely that economies in the Asia-Pacific region will lessen their reliance on preferential liberalization in the foreseeable future, there are signs that they may be reviewing their approach to, and engagement in preferential liberalization initiatives with a view to turning largely dormant plurilateral blocs in Asia and the Pacific into more effective drivers of regional economic integration. Several concurrent initiatives are nudging Governments and other stakeholders towards reviewing their countries’ position in the regional economic architecture and to rethink the ways in which trade can contribute to their development. These initiatives are: (a) the establishment of the ASEAN Economic Community at the end of 2015; (b) success in reaching agreement under the Trans-Pacific Partnership; (c) ongoing promising efforts i n n egotiations o n t he R egional Comprehensive Economic Partnership; and (d) the region- wide economic cooperation and integration process that members of ESCAP have entrusted the secretariat to develop. The fact that global trade growth at 3% per annum continues to linger behind the growth of global GDP for the fourth consecutive year (WTO, 2015), together with and a high level of skepticism about the likely outcome of the tenth Ministerial Conference of WTO in December 2015, are adding to the realization that business as usual with regard to multilateral trade agreements may not be an option for much longer. The ESCAP secretariat monitors trends and developments in the area of economic integration in Asia and the Pacific 3 by assessing (a) trends in the creation of new PTAs as well as changes in the patterns and nature of the PTA landscape involving members and associate members of ESCAP, and (b) the relevance of PTAs for, and interaction with regional and global trade. 4 Monitoring is based on several elements traditionally used to assess PTAs and their outcomes: the number of PTAs; PTA partners and coverage of trade among them; the type 5 and scope of agreements; 6 and their status. 7 Furthermore, as 2016 will mark the tenth anniversary of the General Council’s Decision on the transparency mechanism of regional trade agreements (RTAs), this chapter reviews the notification process to WTO under this transparency mechanism and argues in support of the need to convert it into a mandatory and permanent system to assist further assessment of the impacts of PTAs.
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ASIA-PACIFIC TRADE AND INVESTMENT REPORT 2015 87
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6 PREFERENTIAL
TRADE POLICIES
AND AGREEMENTS
Once considered an example of the benefits of autonomous
trade liberalization, Asia-Pacific economies have turned
into major contributors to a global build-up of preferential
the benefits of removing other so-called behind-the-border barriers are difficult to restrict to TPP members only (e.g.
trade facilitation, or other regulatory measures) and thus the agreement’s comprehensive regulatory reforms – if
they indeed happen – are expected to produce sizable positive “externalities” effects for non-members.
On a broader scale, a positive outcome of TPP is it potential use as a pathway (or stepping stone) to wider liberalization
and integration, specifically in the Asia-Pacific Economic Cooperation where countries are waiting to embark on the
Free Trade Area of the Asia-Pacific (FTAAP). As TPP is a larger and deeper liberalization effort than achieved under
the so-called P4 agreement, it is possible to imagine that FTAAP could likewise use TPP as a stepping stone for
consolidating existing PTAs and reducing the effect of the “noodle bowl”.
In thinking about the policy response to TPP, non-TPP countries should wait for the full provisions of TPP to become
available before evaluating the costs and benefits to their own trade and investment patterns. They should also
evaluate their national regulations and TPP obligations in the “next generation issues” to make an assessment about
the changes that they will need implement on the domestic front and the associated challenges if they want to join
TPP.
TRADE WITH PREFERENTIAL TRADE AGREEMENT PARTNERSB
The extent to which economies in the Asia-Pacific region
trade with their PTA partners varies considerably (figure
6.7). Only 35% of exports and 45% of imports are transacted
with the PTA partners (as a simple average for 2011-2013).
Most of the least developed countries show a very high share
of exports to their PTA partners, typically neighbouring
nations – e.g. Afghanistan (72%), Bhutan (88%), the Lao
People’s Democratic Republic (86%) and Myanmar (92%).
Some South-East Asian countries also have a much higher
dependence on trade with PTA partners. At the other end
of the spectrum, the Pacific island countries export less than
10% of their total exports, on average, to PTA partners. While
averages can hide important specifics (i.e. the liberalizing
quality of PTAs), it is worth noting that the figure for North
and Central Asian economies is only 16%. Import patterns
are similarly diverse. Some economies show a much higher
propensity to import from the PTA partners compared with
their export pattern – e.g. Bangladesh (60%), Cambodia
(90%), Sri Lanka (51%) and Macao, China (60%) – while
some others tend to import much less from PTA partners
than what they export to them (e.g. in the case of Afghanistan,
Bhutan and some Pacific island nations).
“An average Asia-Pacific economy buys less than 40% of its imports from its PTA partners.”
No fixed pattern is observed from this analysis as there are
variations in the trade patterns of the individual economies,
although small economies’ share of trade with neighbouring
PTA partners is still significant. On the export side, Brunei
Darussalam directs almost 100% of its exports to its PTA
partners.
An ideal situation would be to have the preferential trade
data to do this analysis. Unfortunately, these data are not
available for most of the economies in the Asia-Pacific region;
thus the total trade with PTA partners is used as the best
proxy when analysing benefits from PTAs.
ASIA-PACIFIC TRADE AND INVESTMENT REPORT 201596
Figure 6.7. Share of trade with PTA partners,
(Percentage, average for 2011-2013)
0 10 20 30 40 50 60 70 80 90 100
Brunei DarussalamMyanmar
BhutanLao PDR
Kyrgyz RepublicAfghanistan
IndonesiaKorea, Rep.
MalaysiaSingapore
UzbekistanPhilippines
SamoaNepal
ThailandTajikistan
New ZealandPapua New Guinea
VietnamIndia
ArmeniaGeorgiaPakistan
NauruChinaTonga
Hong Kong, ChinaAustralia
CambodiaMacao, China
NiueJapan
KazakhstanTurkey
Solomon IslandsIran, Islamic Rep.
Russian FederationTurkmenistan
MaldivesSri Lanka
BangladeshAzerbaijan
FijiCook Islands
VanuatuTuvaluKiribati
Micronesia, Fed. Sts.Palau
Import
Export
Source: ESCAP calculation based on United Nations Comtrade data downloaded from WITS and APTIAD databases (accessed July 2015).
ASIA-PACIFIC TRADE AND INVESTMENT REPORT 2015 97
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Three developed economies are also dissimilar, with Japan
relying on much of its trade with non-partners, New
Zealand’s exports and imports are more or less balanced
(50% and 54%, respectively) while Australian imports from
PTA partners hold a higher share (43%) compared with
exports (24%).
C TRANSPARENCY AND PREFERENTIAL TRADE AGREEMENTS: THE RECORD OF ASIA-PACIFIC ECONOMIES14
The existence of PTAs was “legalized” under the multilateral
trading system rules early on by the GATT Article XXIV,
which allowed formation of a customs union or free trade
area. Article XXIV. 7(a) and &(c) provides for a transparency
mechanism15 under which the WTO members are required
to notify details of PTAs to the WTO Secretariat. Despite
this requirement, in practice most of the members did not
comply as prescribed under the rules and therefore this
concern was incorporated into the Doha Round agenda.
Moreover, on 14 December 2006, the General Council
established, on a provisional basis, a new transparency
mechanism for all RTAs. It envisages that Members would
review and, if necessary, modify the decision, and replace
it with a permanent mechanism adopted as part of the overall
results of the Doha Round.16
At present, the WTO Members are required to notify the
WTO Secretariat of the details of their preferential trade
deals17 under the following conditions:
(a) Early Announcement. Members participating in new
negotiations aimed at the conclusion of an RTA should
inform the WTO Secretariat of such negotiations;
(b) Notification of ratification. The PTA should be notified
as early as possible and, in general, no later than the parties'
ratification of the PTA, or on the application of an agreement
and before the application of preferential treatment between
the parties;
(c) Subsequent notification and reporting. Any changes
affecting the implementation of a PTA, or an already
implemented PTA, should also be notified to WTO; and
(d) RTA implementation period. The parties must submit
to WTO a short written report on the realization of
liberalization commitments in the RTA as originally notified.
Of all agreements involving at least one Asian or Pacific
economy, 155 are enforced, 12 are pending ratification and
64 are being negotiated. With regard to RTA transparency,
notification is required for all of these categories. However,
only 151 of these PTAs have been notified to WTO by the
Asia-Pacific economies (133 of which are in force, 2 are
pending ratification and 16 are still under negotiation). In
addition, the largest number of PTAs that have not been
notified to WTO are in the “under negotiation” category
(figure 6.8). The exact reason for no notification is not known;
however, one possibility could be a lack of awareness of the
notification procedure.
Figure 6.8. Preferential trade agreements with WTO notification, June 2015
10
60
3
60
216
5
16
10
48
0
10
20
30
40
50
60
70
80
PTA FTA CU FTA and EIA Pendingratification
Undernegotiation
Num
ber o
f agr
eem
ents
Notified to WTO Not notified to WTO
Source: ESCAP calculation based on data from APTIAD.
ASIA-PACIFIC TRADE AND INVESTMENT REPORT 201598
Another important issue related to the transparency
mechanism is submission of data by the PTA parties.18 As
shown earlier in this chapter, it can be difficult to get data,
even for total MFN trade, for calculating trade with PTA
partners. In several Asia-Pacific economies there is a big
time lag in data availability (e.g. on some cases, even data
for 2013 were not available in July 2015).
The transparency mechanism requires WTO Members to
notify import statistics, especially those for each party’s
imports from the rest of the world, broken down into the
country of origin in terms of value. It also recognizes the
constraints facing developing countries in collecting the
data. It would be useful to have the total MFN trade data as
well as preferential trade data in order to carry out a complete
analysis of benefits and losses of PTA. It is important for the
developing and least developed countries to make an effort
to capture the preferential trade data for inclusion in their
trade statistics. Unfortunately, most of those economies do
not have the preferential trade data, neither within the
government domain nor in the public domain. This creates
greater challenges for policymakers as they cannot draw on
their past assessments for negotiating new agreements, not
can they evaluate actual trade under each PTA and whether
or not the agreement really benefits their economy.
The WTO transparency provision is an important step in
getting countries to make the effort to capture and then
disseminate preferential trade data. Such a step will be useful
for various assessments of the ex post facto analysis of the
PTAs. At the same time, most of the preferential trade
remedies cannot be taken due to the lack of this data. In
most of the stakeholders’ consultations in preparation for
PTA negotiations, the industry is often given to understand
that the preferential trade remedial measures will be
available. However, due to the lack of preferential trade data
the industry fails to establish the fact that the surge in
preferential imports is causing damage to the domestic
industry and thus no remedial actions can be taken. This
leads to a situation where the Governments initiate global
remedial measures, thus penalizing those exporters who
have not been the cause of such preferential surge and
resulting in the creation of more barriers than necessary to
legitimately protect the domestic industry.
RTA transparency could therefore be an important tool for
economies when building their capacity and seeking
technical assistance in developing a mechanism for capturing
preferential trade data. This would also be useful for
policymakers when assessing which PTA is more useful for
exports and imports, as it would enable them to make an
informed decision on consolidating PTAs.
Asia-Pacific economies, initially considered to be latecomers
to reciprocal preferential negotiations, have advanced
rapidly to claim a leading position and contribute the largest
share of PTAs, both in terms of the overall number and in
adding new agreements to the list. However, Asia-Pacific
economies are now looking towards “next generation”
agreements – covering areas beyond WTO through mega-
blocs. These “new generation” mega-agreements (such as
RCEP, TPP and EAEU) cover areas beyond WTO commitments
and are aimed at establishing new disciplines in these areas.
Thus, it can be expected that a number of agreements
negotiated some time ago might be revisited with a view to
not only deepening their current, relatively shallow
liberalization content but also to expand their coverage. The
ultimate objective appears to be the generation, through the
web of a critical mass of PTAs, of a consensus for including
these beyond WTO areas in future multilateral agenda by
following the building block approach.
One of the remaining challenges for Asia-Pacific economies
is the multiplicity of PTA known as the “noodle bowl”. There
is no correlation between (a) the number of PTAs and (b)
the share of trade and its expansion under PTAs. Economies
with a lesser number of agreements often have are greater
D CONCLUSION
share of intra-PTA trade than those that sign a large number
of PTAs. It is therefore important that economies start
reducing the complexity of negotiated terms and attempt
to consolidate their multiple PTAs, which will ease the terms
of trade transactions. A few such efforts in the Asia-Pacific
region appear to be underway. The Asia-Pacific Trade
Agreement is expanding its membership and is looking to
provide an open-ended agreement that any developing
member of ESCAP can join. It remains to be seen if the
agreement can be also opened to the three developed
countries in the Asia-Pacific region and if, at the same time,
it can convert itself into a high-standard free trade agreement.
Other agreements that are emerging as strong alternatives
are RCEP, and TPP. It is not certain whether, after the
implementation of RCEP and TPP, the ASEAN+1 and other
existing agreements (more than 50 in total) will be nullified
or not. Only when RCEP and TPP become open-ended
agreements and overtake all other bilateral agreements
between its members, can true consolidation be achieved
that can truly address the “noodle bowl” problem.
Transparency of PTAs is another challenge that the Asia-
Pacific economies will have to address. Some 23 agreements,
especially those in the Central Asia region (14 agreements),
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2 This number refers only to the so-called “physical” agreements reported by the WTO as of 6 May 2015 (see website at http://rtais.wto.org/UI-publicsummarytable.aspx). Normally, the WTO reports the number of trade agreements based on notification requirements, which means that if a trade agreement includes both goods and services, it will be counted as two notifications – one for goods and the other for services – even though it is physically one trade agreement. To prevent unnecessary inflation of the number of agreements, only the physical number of trade agreements is reported here, counting goods and services between the same partners as one.
3 In addition to the agreements notified to WTO, the Asia-Pacific Trade and Investment Agreements Database (APTIAD) records agreements that have not been notified to WTO, which has resulted in the increased number.
4 For example, previous issues of the Asia-Pacific Trade and Investment Report (ESCAP, 2009, 2010, 2011a, 2011b, 2012a, 2012b , 2013 and 2014) as well as other publications by the ESCAP Trade and Investment Division, including APTIAD Briefing Notes.
5 Classified as Partial Scope Agreements (partial tariff reduction commitments), free trade agreements (FTAs), custom unions (CU), and economic integration agreements (EIAs), which in the WTO taxonomy are reserved for services only.
6 Classified as bilateral, plurilateral or country-bloc agreements.
7 Classified as “in force”, “pending country ratification” or “under negotiation”.
8 The numbers presented in figure 6.1 are based on the established WTO practice of self-classification by economies with regard to their development level. Following that practice, only three Asia-Pacific economies are “developed” and the remainder are “developing”, including the special category of least developed countries, despite the fact that a number of them have a high rate of GDP per capita and a not-insignificant share in world trade.
9 This number ignores the deal signed between China and Taiwan Province of China, which is still not in force (according to the WTO RTA-IS database at http://rtais.wto.org/UI/PublicShowMemberRTAIDCard.aspx?rtaid=713). In addition, the Mongolia-Japan FTA was signed but has not yet been ratified.
10 There are 92 bilateral PTAs between developing economies, 28 between developing and developed economies and 4 between developed economies.
11 From the number of parties to the nature of the agreement, 22 plurilateral agreements are very diverse. The agreement with the largest membership is GSTP (44 members). Some agreements have the same core membership but are able to present themselves as different PTAs. Some of these emanate from the political split among the original membership (e.g. Commonwealth of Independent States Free Trade Area (CISFTA) and Commonwealth of Independent States (CIS)).
12 In fact, while Asia-Pacific economies do not notify inactive agreements (apart from Turkey), there is no economic rationale for not cancelling inactive agreements or those that have been surpassed by more advanced versions. Australia and New Zealand did so when they reached a new agreement in 1982 and placed their previous agreement, signed in 1965, into the “inactive” category. There are several candidates for cancellation among agreements categorized as “in force” at present (e.g. the Lao People’s Democratic Republic-Thailand partial scope trade agreement notified in 1991).
13 Despite the official titles given to the agreed texts, WTO
members are able to choose only among four different
“types” when notifying their agreements. These four types
are: free trade agreements and customs unions (for goods);
economic integration agreements (for services); and partial
scope agreements (only for agreements between developing
countries).
out of 156 agreements in force have not been notified to
WTO despite the transparency mechanism under which
WTO members are required to provide details of PTAs to
the WTO secretariat. Another issue regarding the
transparency mechanism is the submission of data as
discussed in this chapter. The lack of data may create
disadvantages for policymakers as well as domestic
industries as various data-based analysis and assessments
of the PTAs cannot be produced. The availability of
preferential trade data will be useful not only to researchers,
but also to policymakers, since they would be able to evaluate
in actual terms the benefits and gains from the PTAs. This
will be useful to future negotiations as well as policymaking.
ENDNOTES
1 In line with much of the existing literature, this report also uses the term “preferential trade agreement (PTAs)” as a generic term for any form of negotiated reciprocal preferential trade agreement between two or more economies. The WTO convention is to use “regional trade agreements” as the generic term encompassing both bilateral and multi-country (plurilateral) agreements. However, because of the specific characteristics of the economic integration process in Asia and the Pacific, which comprises five subregions that are all pursuing some form of “regional” liberalization, it was thought that using preferential trade agreement as a generic form would lessen terminological use of “noodle bowl”. The key features of any generic term here is that it must describe a process that is both reciprocal and discriminatory in the context of not providing trade preferences for all WTO members; however, preferences that are provided are on a reciprocal basis. A summary of the applied taxonomy is provided in the Annex.
ASIA-PACIFIC TRADE AND INVESTMENT REPORT 2015100
14 Please refer to endnote 1 with regard to interchangeability
of use of terms PTAs and RTAs.
15 A similar provision exists under Article 5 of the General
Agreement on Trade in Services (GATS).
16 The new transparency mechanism provides for early
announcement and notification to WTO of any RTA.
Members will consider the notified RTAs on the basis of a
factual presentation by the WTO Secretariat. The Committee
on Regional Trade Agreements will consider RTAs falling
under Article XXIV of the General Agreement on Tariffs and
Trade (GATT) and Article V of GATS. The Committee on
Trade and Development will consider RTAs falling under
the Enabling Clause (trade arrangements between
developing countries).
17 The details include information related to the official name
of a PTA, its scope, date of signature, any foreseen timetable
for its entry into force or provisional application, relevant
contact points and/or website addresses, and any other
relevant unrestricted information.
18 Annex of WTO Document WT/L/671.
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ONLINE DATABASES
United Nations, Economic and Social Commission for Asia and the Pacific. Asia-Pacific Trade and Investment Trade Agreements Database. Available from http://artnet.unescap.org/databases.html#second
United Nations, Statistics Division, Department of Economic and Social Affairs. UN Comtrade database. Available from www.comtrade.un.org.
World Trade Organization, Regional Trade Agreements Information System. Available from rtais.wto.org/UI/PublicMaintainRTAHome.aspx
Source: Adapted from World Bank, 2005.Notes: The database is available at http://ptadb.wto.org/?lang=1.* Examples are provided from the pool of PTAs involving Asia-Pacifi c economies.**All developed countries and a number of developing economies have put in place some non-reciprocal trade preferential arrangements.